PBO - Lecture 03 - Frameworks For Operations Management

Lecture 3 – Frameworks for Operations Management Principles of Business Operations
Principles of Business
Operations
Lecture 3:
Frameworks for Operations Management
V1.0 © NCC Education Limited
Frameworks for Operations Management Lecture 3 - 3.2
Learning Objectives
On completion of this unit, students will be able to:
• Appreciate and understand the importance of

performance measures used by organisations
Introduction
• Organisations need to measure their performance

against targets to ensure they are achieving their
goals.
• They do this in several ways …
V1.0 Visuals Handout – Page 1

Key Questions for Organisations
• How should we measure performance of goods and

services?
• How should we measure p performance of pprocesses
throughout the value chain?
• How should we measure overall organisational
performance? And how does it relate to internal
operations?
Performance Measurement 1
• Measurement is about quantifying performance

criteria of goods, services and associated activities
• Good performance measures offer managers facts

– not opinions
Performance Measurement 2
• Too many or too few performance measures is

undesirable
• World class organisations generally use between 3-

10 per process

Key Performance Measures 1

Categories key of performance measures include:
• Financial
• Customer and markets
• Safety
• Quality
• Time
• Flexibility
• Innovation and learning
• Productivity

Financial
• Often high priority for organisations
• Income and profit
• Earnings per share
• Labour and materials costs
• Note – measuring the cost of quality is undesirable
Class Activity
• Work in groups of about 5
• Considering the key performance measure of

finance – whyy do you
y think it undesirable to
measure the “cost” of quality?
• 10 minutes
• Feedback to the class

• 5 minutes


Customer and Markets
• Measuring customer satisfaction – goods, level of

service response time
service,
• Customer satisfaction is a key measurement – even

for organisations that don’t use it!

Safety
• Vital to all organisations to protect customers &

employees
• Number of accidents/incidents
• Lost workdays
• Workplace safety violations

Quality
• Degree to which the output of a process meets

customer requirements or expectations
• “Goods” quality relates to the physical performance

and characteristics


Quality continued…
• Features offered
• Reliability of the product
• Durability of the product
• Conformance – does it do what it is supposed to do
• Serviceability
• Aesthetics (visual, look and feel, etc.)

Quality continued…
• Common measure of quality is “number of defects

per unit”
• Service quality – continually meeting or exceeding
customer expectations & service delivery
performance
• Common measure of service quality is “service
upsets” or “service failures”

Time
• Speed of doing something

• Reliability of doing something
• Manufacturing lead time – elapsed time from order
being placed to shipment to customer
• Purchasing lead time – total time taken to obtain the
good or service


Flexibility
• Ability to adapt quickly and effectively to changing

requirements
• Design flexibility
f is the ability to develop a wide
range of goods or services to meet different or
changing customer needs
• Volume flexibility is the ability to respond quickly to
changes in volume demand

Innovation and Learning
• Innovation is the ability to create new and unique

goods and services that delight customers and
create competitive advantage
• Learning is the ability to create and acquire
knowledge and use this to improve the organisation

Productivity
• Measures the ratio of output of a process to the
input
• Efficiency measures the degree to which the output
uses the minimum number of resources
• Effectiveness measures how well the process
achieves the objective of meeting the customer
requirements

Internal and External Performance

Measures
• Uses “cause and effect” measures between key
performance measures
• For example
p – how do improvements
p in customer
complaint handling affect customer retention?
• Often used to explain linkages between internal and
external measures
Designing Performance Measures

Key questions to answer include: Does the
measure:
• Support the organisation’s mission?
• Help the organisation to manage change?
• Have importance for customers?
• Forecast results effectively?
• Allow for collection easily/cost-effectively?
• Have an owner?
Class Activity
• Work in groups of about 5
• Devise some key performance measures for a fast

food restaurant. Justifyy whyy you
y have included
these as “key”.
• 15 minutes
• Feedback to the class

• 5 minutes

Performance Measures Reliability
• How well does the measuring instrument assess the

true value of the performance objective being
assessed?
• Remember – garbage in, garbage out
Organisational Performance Models

There are several popular models used to assess
organisational performance – we shall briefly look
at 4 of them …
• Malcolm Baldrige National Quality Program

• Balanced Scorecard
• Value Chain
• Service-Profit
Malcolm Baldrige National Quality

Program
• Provides a framework for performance excellence
through self-assessment to understand the
organisation’s strengths and weaknesses
• See Exhibit 3.7 of Evans & Collier (2007)

“Operations Management: An Integrated Goods &
Services Approach”, Thomson, p. 94.

Balanced Scorecard
• Translates strategy into measures on four
dimensions: finance perspective, customer
perspective, innovation and learning perspective,
and internal perspective

Value Chain
• Measures the “added value” of goods and services
and information as they pass through the
organisation’s processes

Service-Profit
• Particularly useful to service organisations.
Measures cause and effect linkages between
internal and external performance


Conclusions
• Organisations need to measure performance
against objectives to ensure they are meeting their
goals and the needs of their customers
• Some measures can be used to demonstrate

linkages between internal and external factors
• There are several models organisations can adopt

to help them in devising performance measures
References
• Evans & Collier (2007) “Operations Management:
An Integrated Goods & Services Approach”,
Thomson
Lecture 3 – Frameworks for Operations

Management
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Lecture 3 – Frameworks for Operations Management Principles of Business Operations

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.2

On completion of this unit, students will be able to:

• Appreciate and understand the importance of

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.3

• Organisations need to measure their performance

• They do this in several ways …

V1.0 © NCC Education Limited

V1.0 Visuals Handout – Page 1

Frameworks for Operations Management Lecture 3 - 3.4

Key Questions for Organisations

• How should we measure performance of goods and

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.5

• Measurement is about quantifying performance

• Good performance measures offer managers facts

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.6

• Too many or too few performance measures is

• World class organisations generally use between 3-

V1.0 © NCC Education Limited

V1.0 Visuals Handout – Page 2

Frameworks for Operations Management Lecture 3 - 3.7

Key Performance Measures 1

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.8

Key Performance Measures 2

• Note – measuring the cost of quality is undesirable

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.9

• Considering the key performance measure of

• Feedback to the class

V1.0 © NCC Education Limited

V1.0 Visuals Handout – Page 3

Frameworks for Operations Management Lecture 3 - 3.10

Key Performance Measures 3

• Measuring customer satisfaction – goods, level of

• Customer satisfaction is a key measurement – even

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.11

Key Performance Measures 4

• Vital to all organisations to protect customers &

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.12

Key Performance Measures 5

• Degree to which the output of a process meets

• “Goods” quality relates to the physical performance

V1.0 © NCC Education Limited

V1.0 Visuals Handout – Page 4

Frameworks for Operations Management Lecture 3 - 3.13

Key Performance Measures 6

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.14

Key Performance Measures 7

• Common measure of quality is “number of defects

V1.0 © NCC Education Limited

Frameworks for Operations Management Lecture 3 - 3.15

Key Performance Measures 8

• Speed of doing something

V1.0 © NCC Education Limited

V1.0 Visuals Handout – Page 5